By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Bahamas was yesterday urged by a well-known "fiscal hawk" to strive for the "lowest revenue ratio in the Caribbean" and reject the IMF and credit rating agencies' advice.
Rick Lowe, an executive with the Nassau Institute think-tank, told Tribune Business that the lowest ratio of revenue-to-GDP was "a good goal to have" in trying to place The Bahamas' finances bank on a sustainable path.
Arguing that the size of government, and the spending needed to support it, were the root cause of The Bahamas' problems, Mr Lowe said the government's objective should not simply be to please external agencies.
"That's a good goal to have; to be the lowest taxed in the region," he told this newspaper. "Our goal is not to be what the IMF wants us to be. Our goal is to do it right. Our goal is not to get into a difficult fiscal position."
Mr Lowe was speaking after well-placed government sources said the IMF, and both Moody's and Standard & Poor's (S&P), frequently expressed concern that the Bahamas' tax revenue intake was among the lowest in the region as a percentage of GDP.
The issue was highlighted by K P Turnquest, Deputy Prime Minister, in unveiling the 2018-2019 Budget. He said the 60 per cent VAT rate hike, and the $400 million in additional revenues that will generate, are key to bringing the Bahamas' revenue-to-GDP to 20.1 per cent in the upcoming fiscal year - a ratio more in line with the Caribbean average.
Mr Turnquest said it was a "pressing concern" that revenues for the 2017-2018 fiscal year were projected to come in $130 million below forecast despite a 1.4 per cent GDP expansion, and argued that this justified both the increased taxes and enhanced compliance/enforcement measures.
"The bottom line is that the yield of our revenue system, at 16.1 per cent of GDP in 2017-2018, is well below the revenue yields found elsewhere in the region, where yields average in the area of 25 per cent of GDP, and certainly is inadequate to the needs of a modern government," the Deputy Prime Minister said.
Besides Mr Lowe's rejection of such an argument, others - including Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president - have pointed out that the 16.1 per cent revenue ratio is the direct result of last year's upward revision of Bahamian GDP to an $11 billion economy.
Mr Lowe, who first warned about the build-up in the Bahamas' national debt in 2001 when it was less than $3 billion, said the Minnis administration deserved credit for being the first government to properly "level" with the Bahamian people on the dire state of the public finances.
Praising it for at least trying to enact much-needed reforms, he said it was better for the Bahamas to endure harsh austerity measures now than have even more bitter medicine forced on it by the likes of the IMF should the fiscal slide continue.
"We knew it was coming," Mr Lowe told Tribune Business. "How and when we didn't know, but it's better now than down the road when it would be even worse. The trends were all in the wrong direction. It's better to try to deal with it now than fall off the ledge completely and be forced to do things even worse."
Suggesting that the Government's strategy had created "some light at the end of the tunnel", he argued that "the proof of the pudding is in the eating" and that it must deliver on the promised improvements in the fiscal position to maintain the Bahamian people's confidence.
"I think the VAT increase is a killer; it's a really sour note," Mr Lowe conceded. "But obviously this stuff has to be dealt with. The $360 million arrears and the unbudgeted things they didn't put in the Budget, it's unconscionable. It's just unreal.
"The country is in bad shape and we knew it was getting worse. At least we can see it. I think they're [the Government] being sincere. How it works out is the question. If economic growth happens in spite of this they can recover sooner rather than later.
"The difficult thing is how you grow this economy, and I don't think they have enough trust in their own numbers to say the economy will grow with less taxation. The danger is that it's going to slow the economy even further."
Mr Lowe expressed concern that the Budget failed to mention Business Licence reform, and warned the Government against continual "hammering" of the private sector with new and/or increased taxes.
"There's too much against the business community, and they need the business community to be profitable to generate the taxes they require," he told Tribune Business. "They can't keep hammering and keep hammering.
"If I had a wish, I just wish they wouldn't raise VAT. When these tax systems are put in place, it's inevitable they raise them. It's a vicious circle; there's so much piled up against them and us as taxpayers."
Mr Lowe also called upon the Government to show the same "tenacity" on curbing spending as it had in increasing the VAT rate. "Spending is the problem and we've been continually growing the Government for 50 years now," he added.
"If any of this shows positive results in the near term, they'll be praised. If the VAT has the effect of slowing the economy further, because I don't see any growth in the economy, I think there will be hell to pay. It just shows the trap successive governments have left the country in. Neither party gets an escape from that."
Comments
TalRussell 6 years, 5 months ago
Penalize comrades at commercial banks apply too much discriminatory restraint discipline with hording $2 billion of "unlent cash" in their vaults..... cash to quickly juice existing and startup local enterprises creating thousands family sustaining paycheques. Banks need start paying their fair share taxes into peoples public purse... at least equal total amount 12% VAT red shirts goin take out pockets people every day... working, non-working, retired and the $700 fees per body claimed by loved ones deceased from PMH morgue.
Economist 6 years, 5 months ago
I don't always agree with Mr. Lowe, but I agree that we have to bite the bullet and pay.
The fact that the former government withheld the truth from us about their spending is reprehensible.
But they spent our Vat and added to the national debt and so we now have face the reality of our finances.
Let us accept what has happened, pay the price, and look to the future.
Well_mudda_take_sic 6 years, 5 months ago
Just like the corrupt Christie-led government, the Minnis-led government steadfastly refuses to make known to the public a detailed plan for austerity measures aimed at significantly reducing the size of our grossly over-bloated and non-productive public services sector. And yet you propose to give Minnis and Turnquest the same foolish benefit of the doubt that saw our 7.5% VAT dollars squandered on growing the size of the civil work force rather than reducing our annual deficits and national debt. That's the height of insanity. The Minnis-led FNM government should instead be starved of additional tax dollars until they have demonstrated a sustained good faith track record of meaningful reductions in the payroll and pension benefit costs of our out-of-control public services sector. Why should we subject ourselves to the very real likelihood of being duped by fork-tongued politicians who appear to have no real appetite whatsoever for implementing much needed painful austerity measures?
jamani2 6 years, 5 months ago
This from a "fiscal hawk"
"We knew it was coming," Mr Lowe told Tribune Business. "How and when we didn't know, but it's better now than down the road when it would be even worse. The trends were all in the wrong direction. It's better to try to deal with it now than fall off the ledge completely and be forced to do things even worse."
Just give me plain-speak. Thank you, Mr. Lowe!
TalRussell 6 years, 5 months ago
None 94,409 voting 35 red candidates 10th May - will allow members Imperial red cabinet to blame the PLP for new red regime's paying out cash from people's public purse, for policemen's overtime pay...when the supreme court ruling provided alternative option.
hrysippus 6 years, 5 months ago
TalHusler, you neglected to say that the alternative provided was even worse. You speak in half truths. You would make a good plp supporter as long as you had an easy good paying government job.
RickLoweBahamas 6 years, 5 months ago
http://tribune242.com/users/photos/2018…
RickLoweBahamas 6 years, 5 months ago
http://tribune242.com/users/photos/2018…
Well_mudda_take_sic 6 years, 5 months ago
That should be plenty "plain speak" enough for jamani2 above!
Economist 6 years, 5 months ago
Looking at the numbers set out by Mr. Lowe, it would appear that if you deduct the VAT money from the 2016 numbers, the PLP would have given the country its first BILLION DOLLAR DEFICIT.
When the FNM ran the deficits during the recession in 2009-2012 we at least can see all the road works done in Nassau. What did the PLP do with the 1.8 billion they spent in 2015 and 2016?????
John 6 years, 5 months ago
Regardless of what the fiscal experts say, if The Bahamas does not get up of its hands and start producing something the financial crisis will worsen. All the so called industries, like banking and tourism are actual leakages that take hundreds of millions out of the country every year. It doesn’t take an expert to tell you that if a bucket is leaking faster than you can fill it up you will end up with an empty bucket. You have several choices since the bucket is a given: fill it up faster, fix the leak or do a combination of both.
Well_mudda_take_sic 6 years, 5 months ago
No amount of additional taxes or additional borrowings can fix the massive leaks in our bucket. Only severely painful austerity measures directed at significantly reducing the grossly over-bloated size of our public services sector can meaningfully address the out-of-control leaking that is currently going on day in and day out.
RickLoweBahamas 6 years, 5 months ago
Barbados economic/fiscal policies caused their problems.
First Published: 2013-07-28 by The Nassau Institute
Mr.Owen Arthur, former Prime Minister of Barbados, was in Freeport, Grand Bahama recently to encourage The Bahamas to implement a value added tax (VAT) like he did in Barbados because of the mounting government debt and deficits there.
Their VAT rate started at 15%, has moved to 17.5%, and now there is speculation of 21%. Of course the government denies that 21% VAT is on the horizon.
Coming on the heels of Mr. Arthur’s recommendations, when it was thought things couldn’t get much worse in Barbados, an article from Caribbean 360 states that S & P has downgraded Barbados yet again, "to negative from stable… …for the island that has “fallen back into recession”."
Following is an example of taxation, and by extension, the cost of living in Barbados, as confirmed by an owner in the automotive business.
The list price for a mid-sized SUV is $192,250.56 Barbados dollars or $96,125.00 US dollars.
This price includes?
Import Duty/Excise tax of 45% Consumption Tax of 100%, and, VAT of 17.5%
A similar mid-sized SUV here lists for approximately $43,000.
Political leaders like Mr. Arthur, seldom connect the dots of government borrowing, spending, taxing and regulating with a declining economy. With rumours circulating that The Bahamas government borrows to make payroll as revenue has slipped so badly, are we far behind Barbados?
The solution Mr. Arthur offers seems to be more of the same tax, spend and regulate policies, which causes investors to retrench even further and the problems are exacerbated.
The introduction of VAT will be a further stake in the heart of The Bahamian economy if the government does not revert to its correct role of maintaining peace and justice.
The short answer is The Bahamas needs to study the economic path of Texas or North Carolina, for example. Instead of policies that discourage investment and job growth, pursue policies that encourage the creation of wealth. The government needs to hold the line on spending and reduce taxes and regulations to help alleviate concerns of jittery investors, so the economy can begin to get back on track.
Bahamians should prepare themselves for many surprises of worsening government policy when the "ideas" like VAT being recommended by Mr. Arthur and others fail to increase government revenue enough to cover their continued spending.
https://www.nassauinstitute.org/article…
DDK 6 years, 5 months ago
"Bahamians should prepare themselves for many surprises of worsening government policy when the "ideas" like VAT being recommended by Mr. Arthur and others fail to increase government revenue enough to cover their continued spending."
And that, Mr. Lowe, is the very heart of the problem. Mr. Turnquest says he needs alternatives to the 4.5% VAT increase. They don't want plans, initiatives or ideas, they want money (probably so they can keep spending it)! They are attempting to scare The People into thinking this is the only solution. Is it possible to present an alternative plan for repaying debt and improving the economy that even our Government cannot screw up? Small ting, I know!
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